Tag: Local Content Act

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Oil and Gas Business

Nigerians Participation in the Local Content

Nigeria Local Content

Nigerians Participation and creating value in the Nigeria business has increase as a result of Local Content act.

Despite the pressure of globalization, the Nigerian Government is responsible of ensuring that businesses in Nigeria remain competitive. This informed the need for the Government to put in place frameworks to enhance the ability of local companies to exploit local opportunities while staying competitive globally. The local content provisions in some sectors include;

Oil and Gas

The Nigerian Oil and Gas Industry Content Development Act (“NOGICDA”) which established the Nigerian Content Development and Monitoring Board (“the Board”) was enacted in 2010. The purpose of the Act is to create the framework for growth of Nigerian content in respect of all operations and transactions in Nigeria’s Oil and Gas Sector (“the sector”).

The Act which defines a Nigerian Company to mean a Company registered in Nigeria in accordance with the provisions of the CAMA with not less than 51% (fifty-one percent) equity shares owned by Nigerians mandates investors in the sector to consider Nigerian content as an important element in their project development and management philosophy.

The Act provides that subject to fulfillment of the conditions that may be specified, Nigerian operators and indigenous service companies shall be given first consideration in award of oil blocks, licenses and works in the sector. Consequently, the Board is empowered to execute its duties under the Act as well as ensure that the provisions of the Act are compiled with by stakeholders in the sector.

Shipping

It is only vessels wholly owned and operated by Nigerians, built and registered in Nigeria that can engage in domestic coastal carriage of cargo and passenger within the coastal territorial inland waters or any point with the exclusive economic zone of Nigeria restricts the use of foreign-owned or manned vessels for coastal trade in Nigeria.

Consequently, a vessel which is not owned by a Nigerian citizen shall not carry any substance whatsoever or dredge any material within Nigerian waters. However, a foreign vessel may render assistance to persons, vessels or aircraft in danger or distress in Nigerian waters.

Lottery

In Lagos at least 15% (fifteen) of shares in predominantly foreign owned gaming licence applicants must be held by Nigerians.

Banks

No person can carry on any banking business in Nigeria except it is duly incorporated in Nigeria and holds a valid banking licence. Again, no foreign bank can operate a branch in Nigeria without prior approval of the CBN. However, CBN may grant licence to Nigerian and foreign banks to undertake off-shore banking business from Nigeria.

Information and Communications Technology

The National Information Technology Development Agency (“NITDA“) in 2013 released guidelines on Nigerian content development in information and communication technology. According to the guidelines, ICT companies in Nigeria are to maintain 50% (fifty percent) local content either directly or by outsourcing to local businesses to encourage Nigerian representation and participation in the sector.

Aviation

The Civil Aviation Authority shall not grant an aviation permit, certificate or other authorization to a person who is not a Nigerian citizen or a company registered in Nigeria.

Broadcasting

The Broadcasting Commission shall only grant a licence if it is satisfied that the applicant is a company registered in Nigeria with majority shares owned by Nigerians. The applicant must also demonstrate that it is not applying on behalf of any foreign interest.

Pharmacists

A person shall be registered and practice as a Pharmacist if he is a Nigerian citizen. Nevertheless, a person who is not a citizen of Nigeria may be registered as a Pharmacist if he is a citizen of a country with reciprocal registration facilities to Nigerian citizens.

Engineering

A non-Nigerian who satisfies the Council for Regulation of Engineering in Nigeria that he has been employed for a specific period in a capacity as an engineer and will be in Nigeria temporarily for the purpose of the employment or that he has qualification outside Nigeria which is acceptable to the Council may be registered as an engineer in Nigeria.

A company engaged in engineering services must be registered with the Council for Regulation of Engineering in Nigeria. To do engineering business, the company must have Nigerian directors that are registered with the council and who hold at least 53% (fifty-three percent) of the shares in the company.

Private security

A foreigner cannot acquire an equity interest in, or sit on the board of, a Nigerian private security guard company in Nigeria.

Advertising

Only a national agency (that is, an agency in which Nigerians own not less than 74.9% of the equity) can advertise in the Nigeria market.

Legal Practitioner

A person can only be entitled to practice as a barrister or solicitor in Nigeria if his name is on the roll of the Supreme Court of Nigeria.  Nevertheless, the Chief Justice of the Federation may grant any legal practitioner who is entitled to practice in a legal system similar to Nigeria, licence to practice in Nigeria. Again, if it is expedient for a person to practice as a barrister for the purpose of specific proceedings, the Chief Justice may grant the person the licence to practice as a barrister in relation to the specific proceedings stipulated.

The above are some of the few businesses which insist on local content participation. There is greater awareness on the need for Nigerians to participate in major sector of the Nigerian economy. For instance in the telecommunications sector, stakeholders have frowned at the absence of clear local content policy in the industry which has resulted in massive loss of jobs meant for Nigerians and poor remuneration of Nigerian workers employed by foreign owned telecommunications companies in the wake of outsourcing business model.

There is a clamor for the National Assembly to enact a local content law in other non-oil sectors to improve the capacity of Nigerian businesses and protect the employment of Nigerian employees.

Recent Development

On 5th February 2018, President Buhari signed Presidential executive order 5 for “planning and execution of projects, promotion of Nigerian content in contracts and science, engineering and technology”. Under the executive order, procuring authorities shall give preference to Nigerian companies and firms in the award of contracts in line with the Public Procurement Act, 2007. The executive order prohibits the Ministry of Interior from giving visas to foreign workers whose skills are readily available in Nigeria. The order also directs ministries, department and agencies to engage indigenous professionals in the planning, design and execution of national security projects.

Nevertheless, consideration shall only be given to a foreign professional where it is certified by the appropriate authority that such expertise is not available in Nigeria. In such an instance, the authority will give preference to foreign companies with a demonstrable and verifiable plan for indigenous development prior to award of such contracts.

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Oil and Gas Business

Nigerian Local Content Achievements so far

There have been some notable and measurable achievements recorded in the Nigerian Oil and Gas Industry since the inception of the Nigerian Oil and Gas Industry Content Development Act 2010. Some of what we called “recorded achievements” ordinarily should not would not be seen as achievements if players has obeyed some of rules of engagements prior to the Act.

Thank God for the Act that came some how late to regulate the industry. Prior to the Act, the Nigerian Oil and Gas Industry business both offstream and downstream was free for all for the players that are majorly foreign International Oil Companies.

Read: Nigeria Oil & Gas Business Support Services

Below are Some of the Major Achievements in Nigerian Oil & Gas since the inception Local Content Development Act 2010.

Prohibition of Importation of Welded Products

On e of the key achievements Local Content development has to to Nigerians is Prohibition of Importation of Welded Products. All operators, project promoters, contractors and any other entity engaged in the Nigerian oil and gas industry shall carry out all fabrication and welding activities in – country.

For example, during the construction of NLNG Train 1 to Train 6, foreigners where all over the project. Foreign contractors who where handling the projects were hiring all kids of labors from their country. Unskilled labors, most welded products were imported and many more.

Nigerian Local Contractor Development

Another key achievements of local content act is the NOGICD Act has led to a sizeable portion of the goods, services and equipment vital for the every-day running of operations to be sourced locally. The number of contracts awarded to indigenous contractors and sub-contractors has increased over the years, thereby guaranteeing increased local employment and ensuring the emergence of more local companies.

Indigenous companies are increasingly providing programmes specifically designed to support local contractors and businesses. Seplat operates their annual flagship Community Contractors’ Capacity Building programme which equips local contractors with the necessary skills to help them develop their business processes to an international standard.

Since 2014, over 300 contractors from the Delta and Imo states have benefitted from this programme. This has enabled up to 40% of host community contractors to gain technical skills which were lacking at the time they originally registered as contractors. In addition, 98% of Seplat’s contractor are Nigerian companies – in line with the provisions of the NOGICD Act. Since 2013, contracts worth up to US$1bn have been awarded to Nigerian companies.

Bidding Process for Contracts

The Act requires project promoters and operators to consider Nigerian content when evaluating any bid. Where bids are within one percent (1%) of each other at commercial stage, the bid containing the highest level of Nigerian content shall be selected provided the Nigerian content is at least five percent (5%) higher than its closest competitors.

This initiative is also emphasized through ensuring that award of contracts are not solely based on the principle of lowest bidder and allows a Nigerian indigenous company who has capacity to execute a job not to be disqualified exclusively on the basis that it is not the lowest financial bidder, provided the value does not exceed the lowest bid price by ten percent (10%).

Oil & Gas Company Ownership

Other achievements of Oil & Gas content Act is the NOGICD Act has led to a sizeable portion of 51% Ownership to Nigerian to Oil & Gas Company. This means, an Oil and Gas company is deemed to be a Nigerian company if the Equity Share Capital of company is owned by Nigerian indigenes.

Addressing Militancy and Youth Unemployment

Militancy in the Niger Delta has long been a key issue facing the oil and gas sector in Nigeria and these policies have created opportunities which has reduced levels of unrest in the region. Communities are now actively engaged through community development programmes to support local stakeholders. Seplat’s annual ‘Eye Can See’ and ‘Safe Motherhood’ programmes deliver comprehensive eye care and medical care for expectant mothers.

Read: Oil & Gas Compliance (Permits & Licenses)

This two-way dialogue between Seplat and the local community alongside the Global Memorandum of Understanding (GMOU) signed in 2010 and jointly reviewed and renewed in 2016 has meant that, production downtime due to community unrest against Seplat-owned assets has been kept to a bare minimum.

The Company also has an additional graduate training programme which aims to help Nigerian graduates with no prior oil and gas industry experience to develop their knowledge of the sector and expose them to the technology used. Since 2014, the Company has spent over US$8m on employee training.

While there is still work to be done across the industry, existing data shows that pipeline vandalisation and human error related spillages have reduced in the Delta.

Employment and Training

The inclusion of Nigerians in oil operations provides a significant avenue through which skills can be acquired and subsequently the development of the industry and economy. This is substantiated through the Local Content Act which requires that for each of its operations, an operator or project promoter may retain a maximum of five percent (5%) of management positions as may be approved by the NCDMB as expatriate positions to take care of the interests of investors.

It is also made mandatory for operators in the industry to provide a viable succession plan whereby Nigerians will understudy each incumbent expatriate position for a maximum period of four (4)  years, at the end of which the positions shall become Nigerianised.

Furthermore, the Act mandates that operators and companies operating in Nigeria shall only employ Nigerians in their junior and intermediate cadre or any other corresponding grades designated by the operator or company.

Another interesting provision is the requirement that all project or contracts with a budget of more than $100 million are required to contain a ‘Labour Clause” mandating a minimum % of Nigerian labour in specific cadres.

Increase In Infrastructure Development And Facility Upgrades

Until recently, activities such as engineering, welding and construction were done outside of Nigeria as there were no international standard dockyards or construction sites in place in-country. There have been huge strides in this area with industry leading construction yards built by companies such as Total, Aveon and Saipem to ensure projects can be completed in-country, providing thousands of local jobs.

Read: How to Start Oil & Gas Business in Nigeria

A key example of this is the recent construction of the Egina Floating Production Storage and Offloading Vessel (FPSO), the largest vessel of its kind ever installed in Nigeria. 77% of the construction was completed in-country, a ground-breaking achievement for the country. This confirmed that the Nigeria’s well-equipped construction yards met international standards and were successfully managed by competent local personnel.

Gas and Support to The Power Sector

Gas supply performance relative to Domestic Gas Supply Obligation (DGSO) has greatly improved across indigenous operators including Seplat, Frontier Oil and Gas, and Energia. These companies have been heavily investing in gas production in order to capitalize on the announcement made by the Ministry of Petroleum in 2014, that the DGSO prices were to increase from $0.3/Mscf to $2.5/ Mscf.

For example, Seplat’s average daily gas supply was above 230% of its DGSO in 2017, making it one of the leading domestic suppliers of gas in the country. In addition, it currently contributes 3.5% of the total gas production in Nigeria.

The aim of the 2014 price increase was to encourage investment in-country in order to deliver the envisaged 30GW generation, up from the current 5GW level. Ultimately this will guarantee access to reliable, affordable power for local Nigerians, a vital step to achieve accelerated economic growth.

Legal Services

Where legal services are required to engage in any operation, business or transaction in the Nigerian Oil and Gas industry, operators are obligated to only retain the services of a Nigerian legal practitioner or a firm(s) Nigerian legal practitioners with its office located within Nigeria. This is implemented through the provision of a Legal Service Plan (LSP) to the board every six (6) months which shall extensively provide a report on the legal services utilized in the last six (6) months by expenditure, a forecast of legal services required during the next six (6) months and the projected expenditure for the services. In addition to the above a list should be provided highlighting the external solicitors utilized for legal services in the past six (6) months, the nature of work done and the expenditure made by the operator.

Insurance

To engage in any form of business, operations or contract in the Nigerian Oil and Gas industry, operators and all interested parties must insure all insurable risks related to its oil and gas business with an insurance company, through an insurance broker registered in Nigeria under the provisions of the insurance Act as amended.

Financial Services

It is mandatory for operators to submit a Financial Services Plan (FSP), where financial services are required. Included in the FSP amongst others will be details of financial services utilized in the past six (6) months, a forecast of financial services required during the next six (6) months, projected expenditure; and the nature of financial services required.

It is also provided that operators, contractors and sub-contractors shall maintain bank accounts within Nigeria in where it shall retain a minimum of 10% of its total revenue accruing from its Nigerian operations.

Conclusion

Nigerian Oil and Gas Industry Content Development Act (NOGICD) 2010 and the management body Nigerian Content Development and Monitoring Board (NCDMB) has climbed a great hill but as Mandela said, “there are many more hills to climb” for the long walk is not ended.

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Oil and Gas Business

Local Content Development in Nigeria Oil & Gas Sector

In this post, we x-rayed Local content development in the Nigerian oil and gas industry, the objectives and some of the achievements in the Nigerian oil and gas industry since 2010. The history of Local content development in the Nigerian oil and gas industry, what lead to the Local Content Act and more.

Local Content is a means used in many countries to protect and develop indigenous employees, products and services from foreign experts. The definition is specific to each country and depends on its micro and macro-economic conditions.

Local Content in Nigeria Oil & Gas Sector gives a framework for the increase in Nigerian participation in the Oil and Gas Industry / sector. It prescribes minimum thresholds for Nigerian participation in activities within the industry through the utilization of Nigerian human and material resources and services in the industry. It’s activities, connection with the exploration, development, exploitation, transportation and sale of Nigerian crude oil and gas resources.

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local content development policy seeks to promote inclusiveness and integration of the sector with the rest of the economy to ensure that the country and its people benefit from the ownership of these significant reserves. It also seeks to promote local employment and the use of local goods and contractors so that a country’s citizens are involved throughout the entire supply chain. Other desired outcomes include the increase of domestic capabilities and competencies over time, improvement of national technological capacity and to manage the equal distribution of wealth across the country.

The current climate of the industry has largely been influenced by the passage of various laws and regulations that are administered by local, national and other government organizations representing the interests of state and country. Through these bodies, the Nigerian Government regulates exploration and production of natural gas and crude oil as a result of the authority provided through the Nigerian Constitution and the Petroleum Act (“PA”), which vests the entire ownership and control of petroleum in the Nigerian Government on behalf of the people of Nigeria.

Amongst the most notable government institutions are the Ministry of Petroleum Resources (MPR), Nigerian National Petroleum Corporation (NNPC) and the Department of Petroleum Resources (DPR) which ensure that operations within the industry are regulated to a specific standard.

It is with great input from these bodies that various laws and regulations that directly and indirectly regulate the Nigerian oil and gas industry are implemented and monitored. These laws and regulations vary from those applying to the operational aspects, to the fiscal aspects, such as the PA, the Petroleum Profits Tax Act (“PPTA”), the Deep Offshore and Inland Basin Production Sharing Contract Act (DIBPSA) and regulations which have been made pursuant to the PA, such as the Petroleum (Drilling & Production) Regulations (“PDPR”) which regulate operational aspects of the drilling and production of crude oil.

Prior to Nigerian Local Content Development

Traditionally, major International Oil Companies (IOCs) have dominated the oil and gas sector in Nigeria due to their technological and financial advantages, alongside a lack of proper regulation in the past. This has meant that local content development has been lacking due to the isolated bubble which the IOCs operated in and a critical lack of infrastructure to support processing and refining locally. For example, prior to 2010, nearly US$380 billion and 2 million jobs were estimated to have been lost as the majority of construction, engineering and procurement undertaken by the IOCs was carried out overseas.

Key Legislation/Regulatory Local Content bodies

Read: How to Obtain Oil & Gas Permits and Certificates

What is the Nigerian Content Development Fund (NCDF)?

The Nigerian Content Intervention (NCI) Fund is a pool of funds made available by the Nigeria Content Development and Monitoring Board (NCDMB) to be managed by the Bank of Industry to meet the funding needs of indigenous manufacturers, service providers and other key players in the Nigerian Oil and gas Industry. It is sourced from the Nigerian Content Development Fund (NCDF) created by section 104 of the Nigerian Oil and Gas Content Development Act (NOGICD) Act.

What is Nigerian Oil and Gas Industry Content Development Act (NOGICD)?

The Nigerian Oil and Gas Industry Content Development Act is an act to provide for the development of Nigerian content in the Nigerian oil and gas industry, Nigerian content plan, supervision, coordination, monitoring and implementation of Nigerian content; and for related matters.

What is Nigerian Content Development and Monitoring Board (NCDMB)?

The Nigerian Content Development and Monitoring Board (“the “Board”) established in accordance with this Act shall make procedure that will guide, monitor, coordinate and implement the provisions of this Act.

The NCDMB Board shall implement the provisions of this Act with a view to ensuring a measurable and continuous growth of Nigerian content in all oil and gas arrangements, projects, operations, activities or transactions in the Nigerian oil and gas industry.

The NCDMB Board shall review and assess the plan and, if satisfied that the plan complies with the provisions of this Act, issue a Certificate of Authorization (“the Certificate’) to the operator for that project.

Oil and Gas Local Content Objective

The Federal Government of Nigeria introduced the Nigerian Oil and Gas Industry Content Development Act 2010 (the “Local Content Act”). The main objective/ target is seventy percent (70%) utilization of indigenous labor, materials and resources in all oil and gas projects in country.

The act aims to achieve 70% local content by 2020 and there has been significant progress as can be seen by the increased number of independent and marginal producers.

Since inception, the Local Content Act has brought about a significant shift in ensuring an increase in indigenous participation within the industry.

Post the implementation of the NOGICD Act, the Federal Ministry of Petroleum Resources launched the Petroleum Industry Roadmap which set out the “7 Big Wins”, providing a set of aims for the industry to achieve between 2015-2019. Key elements of the new policy, its benefits and delivery status as at year-end 2018 are outlined below.

The Nigerian Local Content Development Road Map in Oil & Gas Sector

The ultimate objective of the above “7 Big Wins” is to capitalize on Nigeria’s status as the ninth-largest gas reserve holder in the world. These robust projects aim to support the growing ‘gas revolution’ in the country which looks to shift Nigeria away from being an oil-based economy to a gas-based one. This includes expanding Nigeria’s existing domestic refinery capacity, improving gas supply infrastructure across the country and maximising the use of gas powered generation in order to encourage economic development through access to a continuous, cheap and reliable power source.

Read: Local Opportunities in $7.6bn NLNG Train 7 Project

Nigerian Local Content Achievements so far

The Nigerian Oil and Gas Industry Content Development Act Achievements so far. Below are some of the notable achievements recorded in the Nigerian Oil and Gas Industry from the inception of the Act 2010.

Increased Indigenous Participation

More than 30,000 direct and indirect jobs have been created for local Nigerians in the sector since 2010. Some indigenous companies have been instrumental in maximizing opportunities for local content development at their operations. In 2018, 99% of the Company’s entire workforce is Nigerian and Nigerians account for nearly 80% of the Company’s top management positions. The Company also has a rigorous Workforce Capacity Development training programme to ensure its workforce has the necessary skills and knowledge required to operate to an international standard.

NLNG Train 7 Project, a Major Milestone

The $7.6bn NLNG Train 7 Project that just started clearly mapped out the fabrications, supplies, manpower, and others that must be for indigenous utilization.

Click to Nigerian Local Content Achievements

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Business

Effects of Nigerian Local Content Act in Oil & Gas Industry

As Oil and Gas industry is still the major source of Income to Nigeria. Nigerian Local Content Act was developed to aid Nigerians to participate in its Oil & Gas Industry as it was almost controlled by foreign nationals.

Nigeria is a middle-income, mixed economy and emerging market, with expanding manufacturing, financial, service, communications, technology and entertainment sectors. It is ranked as the 30th-largest economy in the world in terms of nominal GDP, and the 23rd-largest in terms of purchasing power parity. It is the largest economy in Africa; its re-emergent manufacturing sector became the largest on the continent in 2013, and it produces a large proportion of goods and services for the West African subcontinent.

The Oil and Gas industry in Nigeria is regarded as the foremost lucrative sector in the economy. It entails the exploration, transportation, development and sale of Nigerian oil and gas resources including upstream and downstream oil and gas operations.

 

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There are a number of policies governing the Oil and Gas sector inter alia the Petroleum Act, Petroleum Technology Development Fund Act, Petroleum Equalization Fund Management Board Act and Petroleum (Drilling & Production) Regulations. In addition, Government institutions such as the Ministry of Petroleum Resources (MPR), the Department of Petroleum Resources (DPR), amongst others, were also created by the Nigerian government to ensure that due process and procedures in the industry are adhered to.

It is however safe to note that a gap was identified as regards the protection of local participation in the industry. This led to the enactment of the Nigerian Oil and Gas Industry Content Development Act, 2010 (herein referred to as the ‘Local Content Act’ or ‘The Act’) by the Nigerian Government.

 

THE LOCAL CONTENT ACT

The objective of the Act is to increase indigenous participation in the Oil and Gas Industry. The Act is designed to promote local participation within the industry, that is, Nigerian incorporated companies. There is no clear definition of a Nigerian Company in the Companies and Allied Matters Act (CAMA) however it recognises that a company duly incorporated in Nigeria, with not less than 51% equity shares by Nigerians and in accordance with the provisions of CAMA can be referred to as a ‘Nigerian Company’ or a ‘Local Company’. This is also in accordance with the Local Content Act.

The Nigerian Content Monitoring Board (NCMB) was established as the regulatory body responsible for monitoring, coordinating and implementing the provisions of the Local Content Act. The NCMB has also been given the mandate to certify companies to ensure compliance with the Local Content Act.

 

Read: Permits & Certificates you Need to Operate in Nigerian Oil & Gas Industry

 

THE Effects of Nigerian Local Content Act

The impact of the Local Content Act on the Nigerian Oil and Gas Industry has been tremendous. A few of these impacts include:

Employment

  •  There has been a creation of employment opportunities for Nigerians who have interest in the industry. This in turn has reduced the unemployment rate within the country. The Local Content Act specifies that for each operation, an operator, in this context foreign expatriate, may maintain a maximum of five percent (5%) of management positions as a way of protecting the interest of investors.
  • Section 31 of the Local Content Act clearly states that a mandatory succession plan needs to be placed wherein Nigerians can understudy an incumbent expatriate for a period of four (4) years. This allows the expatriate disseminate relevant technical expertise to the Nigerian whilst also adding to the development of the Nigerian employee.
  • With the establishment of a mandatory succession plan, there is a certain reassurance of longevity of Nigerian participation and interest within the industry.


Training

  •  Training, in any given field, is advisable as it contributes to the development of manpower which thereafter results in attaining a company’s goals and objectives. Section 30 of the Local Content Act provides that training shall be provided to Nigerians who require adequate training to operate within the Oil and Gas industry. This effort creates an avenue for continuous learning development opportunity.

 

Read: Debt Recovery Service in Nigeria

 

Professional Services

  • Professionals are not left out from the benefits of the Local Content Act. Under Sections 49, 51 and 52 of the Local Content Act, Insurance Brokers, Legal Practitioners and Financial Advisors can be enlisted by contractors and operators within the industry for the provision of professional services for any of the operations the contractors and operators wish to execute.
  • Joint Venture Agreements (JVAs) are usually entered into by parties within the oil and gas industry. This, in turn, will provide opportunities for the professionals listed above to input their services into the industry.

Investment

  • With the introduction of the Act, there has been a high level of investment in the Oil and Gas industry as investments have been received from reputable international companies.
  • The Act, as much as it is directed at local involvement, has also resulted in providing a platform for international participation as well.
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